Keeping forex reserves stable will be a great challenge: Finance minister

Forex reserves under strain:

• Trade deficit hit historic high of $27.56b in April
• Trade deficit widened by 53% year-on-year in July-April this year
• Forex reserves declined to $41.75b in June from $48b in August last
• Taka depreciated against US dollar by around 7.9% in FY22
• Latest inter-bank exchange rate Tk92

Keeping foreign exchange reserves stable would be a great challenge for the government, as the central bank is having to sell dollars from the reserves every day to open import LCs for essential commodities, including food and fuel, amid price volatility in the international market, said Finance Minister AHM Mustafa Kamal.

While placing the proposed budget for fiscal 2022-23 before the parliament on Thursday, he also said a rather sluggish economic recovery from Covid-19 fallouts in major overseas labour markets coupled with the Russia-Ukraine war is hampering remittance inflows to the country.

Nonetheless, the finance minister said the government has a plan to ensure overseas employment for 8.10 lakh Bangladeshi nationals in the forthcoming fiscal, while the country sent 8.77 lakh workers abroad in the first 11 months of this year. 

He also said they have a plan to provide skill development training in different trades to 5.20 lakh workers who want to go abroad.

For the purpose of bringing discipline to the immigration system, three new online systems have been introduced and the sector has been completely digitalidsed through different programmes, he maintained.

Bangladesh's remittance receipts dropped more than 17% in the first 10 months of FY22.

Mentioning that Bangladesh's import volume has reached a record high along with a speedy economic recovery from the pandemic shocks, he said, "During the July-April period of the current fiscal year, the current account deficit stood at $15.3 billion. Related to that, there has been a stress on the exchange rate originating from the increased demand for the US dollar in the local market."

The country's trade deficit hit a historic high of $27.56 billion in the first 10 months of the current fiscal year amid high import expenditure and low export and remittance earnings.

The volume of forex reserves is currently hovering between $41 billion and $ 42 billion, down from a record $48 billion last October. On Wednesday, the reserves stood at $41.75 billion. To date, the central bank this year sold more than $6.61 billion from the forex reserves, according to the Bangladesh Bank.

The central bank is devaluing the local currency taka against the US dollar as a measure to keep reserves stable. At the beginning of January this year, the Bangladesh Bank raised the exchange rate of dollar by Tk0.2 to Tk86 for interbank transactions. Since then, taka has only kept weakening. At one point last Tuesday, $1 was sold for Tk92. The exchange rate was set at Tk91.5 on Wednesday, but was again raised to Tk92 on Thursday.

In general, the cost of imports increases when the local currency depreciates against the dollar in interbank transactions. This devaluation discourages imports and benefits exporters and remittance earners.

Apart from depreciating taka, the government is also controlling import expenditure to keep the reserves stable. The central bank has already increased its LC margin on luxury goods to a maximum of 75%. Besides, officials of banks and financial institutions have been barred from travelling abroad without any urgent need.